The ICE bars a trader, no fine, for entering orders without intent to trade ("spoofing") - second spoofing case in two months
The Intercontinental Exchange issued another spoofing disciplinary action earlier this month - this time in the coffee, sugar, and cocoa markets. I thought this was rather clever on their part in the notice:
"a manual trader, engaged in a pattern of placing one or more fully visible large order(s) on one side of the market while having a smaller order (typically an ICEberg order) resting on the opposite side of the market"
Not seen the capitalization that way before.
Two important things here:
First, again, the exchange stressed it was a manual trader - I can't say how many times a client has told me they don't have to worry because they don't have trading algorithms. The exchange doesn't care how you enter your orders, they care how you manage them.
Second, there was no fine but there was a permanent suspension from the exchange. This might indicate that the trading activity wasn't all that profitable (no disgorgement) but still got the trader a lifetime suspension.
The full order is here
Using MNPI - Material Non-Public Information - can be a violation of exchange rules - here is one way how
The CBOT just fined a firm $350K and imposed a $9,715 disgorgement - that is right they made $9,715 on the trade and got fined $350K. The fine was the old familiar "failure to supervise" because it " failed to diligently supervise its traders in the conduct of their business relating to the Exchange by failing to give sufficient guidance and adequately train its employees on how to comply with its riskless principal mandate without pre-hedging block trades."
The facts are that the firm was invited multiple times to participate in a block trade with a customer. The company had a "riskless mandate in effect." The concept of a riskless principal on a block trade - i.e., consummating a block trade with the customer while having a market transaction that offsets the customer trade - is that banks even include in their block trading and best execution policy manuals (see the Credit Suisse Client Order Execution policy here also can be searched for online). The requirement however is that the hedge trade cannot be consummated before the client block trade is.
And that was the problem here. Traders at an affiliate of the broker consummated the offsetting trade before the customer trade - in essence, front running the customer block order. The CBOE found this happened multiple times.
You can do a block and you can do the offset - you just can't front run a customer block order. And that is how use of material non-public information can get a large fine from the CME.
The full order is here
The CME also issued a similar disciplinary notice for an individual trader today. This does not appear to be the trader related to the order for a firm above as the dates for activity cited do not coincide and the firm violations was on CBOT and this violation was on NYMEX. This interesting point is that the stated violations are the same for roughly equivalent periods of time but the trader fine was $19K and a five day suspension of trading privileges. The full order is here
This is in line with DCM advice to clients that the "failure to supervise" fines frequently are more severe than the fine to the individual trader. This should always be a point of focus for any firm's compliance program.